Retire a millennial millionaire

Thursday, 16 June 2016

The idea of having £1 million in a retirement account for most millennials seems like an unfathomable idea. Though as a generation millennials are starting to save sooner than previous generations with mounting costs of living it can feel difficult to make progress. But it could be reality for not an awful lot each month. At SavingScotts we are going to share with you the simple steps to make this dream a reality.

To make this a reality there are a few factors to consider.Fund little and often.Setting up a direct debit to create monthly contributions is a super simple way to may paying into a pension part of second nature. In fact you probably won't even notice it. Making regular monthly contributions is also beneficial as it helps to reduce the effect of stock market fluctuations on the value of your portfolio. Take advantage of employee benefits.Many employers offer pension schemes which they contribute to or match contributions, this is essentially free money and always worth taking. Wells Fargo found that only 13% of Millennials were signed up to employer contribution schemes. Though the downside is that you normally have less control over how the money is invested and managed this is outweighed by the free money. It is always a great idea to invest in the most tax and investment efficient manner whilst considering employer contributions. This may mean contributing in the employer pension (or 401K) up to the match limit and then contributing to a plan with more flexibility (a SIPP (UK) or Roth IRA(USA)).Achieve good rates of return over time.Investing wisely in funds can produce long term returns in excess of 10-12% (and often higher) far greater than you will earn in cash savings accounts. The power of compound interest really amplifies when there is lots of time. Investing for a longer time means you don't need to make as big monthly payments and the overall return on you investments is likely to be greater. As with all investing in funds its best to take a long term view to ride out fluctuations in the stock market this means look for funds with the potential for long steady growth rather than sudden overnight growth. As a millennial you could be looking at around 40 years of the power of compound interest and stock-market changes. This time is truly the key to your retirement success.

£1 million from £2.20 a day?

To show how simple this is to achieve here is an example contribute £64 (in the UK this gets "grossed" up to £80, but you may also have an employer match). Invest regularly for 40 years with average returns of 12.11% (which with sensible choice of funds taking a long term view is reasonable) and you could see returns of £1,003,056.20. £65 is around £2.20 a day. Think about what you spend that money on each day. Would you give up a coffee for the ability to retire a millionaire?

Plus £1 million is a great amount to aim for as of present the lifetime allowance in the UK is £1 million. This means this is the maximum amount you can invest in pension schemes without incurring tax liabilities. Though the lifetime allowance has changed over the years and could easily change by the time millennials retire, it is still a great goal to strive for. As you get closer to retirement keep an eye on the lifetime allowance and how close your pension pot is to it as going over the limit could result in a rather hefty tax bill (presently 25-55%)

So whats stopping you, you could be the next millennial millionaire

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